King Charles will give his first King’s Speech at the state opening of parliament on November 7 2023, and he may have a long-awaited update on leasehold reform.
His speech will set out the government’s plans for the year ahead, including the laws they intend to get through parliament.
Leasehold reform has been confirmed on the agenda, fuelling speculation about the exact nature of the legislation that will be put forward.
With an estimated 4.86 million homes in the UK subject to a leasehold arrangement, many people will be eagerly awaiting good news in the King’s Speech tomorrow.
The government estimates that 35.3 per cent of homes in London are leasehold properties, with over 1.3 million leasehold dwellings in the capital.
Abolish or reform?
Michael Gove, the secretary of state for Levelling Up, Housing and Communities, had previously stated he wants to abolish the leasehold system entirely.
“I don’t believe leasehold is fair in any way,” he told the Sunday Times in January 2023.
“It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it.”
Gove suggested the leasehold system, where lessee homeowners buy temporary rights to their property and pay rent on the ground it is built on to the landowner, be replaced by a reformed commonhold system.
Introduced in England and Wales in 2002, the commonhold system allows the owners of each property in a building to co-own the freehold indefinitely.
Under leasehold, homeowners must renew their lease for a fee within a certain period, usually 99, 125 or 999 years.
Leasehold homeowners must also pay ground rent to the landowner (aka the freeholder), a regular payment at a cost set by said landowner or face legal action.
However, after a reported pushback from Number 10 over his plans to scrap the system entirely, Gove appears to have settled for reform over outlawing leaseholds outright.
“We will continue action on exploitative ground rents, expand leaseholders’ ability to enfranchise –and to take back control from distant freeholders, we will reduce punitive legal service charges, reduce insurance costs – and improve transparency,” Gove stated in July 2023.
What could be in the new bill?
Last month Rachel Maclean, a minister of state at the housing department, posted on X (formerly Twitter) that the King’s Speech would outlaw their plans to “end the reign of rip off freeholders and incompetent profiteering management companies”.
The new leasehold bill may include measures such as a stipulation that all new houses in England and Wales must be sold as freehold properties.
There is also the suggestion that existing ground rents would be capped at a low token rate – a peppercorn rent that would keep the leasehold legally binding while freeing the leaseholder from the cost of ground rent.
This reform announcement will be a sequel to the Leasehold Reform (Ground Rent) Bill, which came into force on June 30, 2022, and set ground rent for new long leases at a peppercorn rent level.
Leasehold homeowners have the right to extend their lease by 90 years for a flat or 50 years for a home once they have owned the property for two years, but under the new laws eligible leaseholders could apply to extend their lease for 990 years at ground rent zero.
How does a leasehold cost the homeowner?
If the lease gets too short, it can become hard to sell your home as many lenders are reluctant to offer a mortgage on a house with less than 80 years remaining.
This seriously impacts a property’s resale value, and if the lease runs out completely the house becomes forfeit.
However, statutory lease extensions for houses and flats are exempt from the Leasehold Reform (Ground Rent) Bill.
Lenders are also unwilling to offer mortgages where ground rents have become too high, a problem that occurs when developers set the original ground rent at low prices to encourage buyers, then increase it at regular intervals.
As well as ground rent, leaseholders also pay an annual service charge for the maintenance of any communal areas.
These costs are set by the property manager and can escalate at an alarming rate, leaving homeowners in a vulnerable position.
Around 54 per cent of leaseholders have encountered problems with the service charges, according to the 2019 Homeowner Survey by the Homeowners Alliance.
One London leaseholder recently shared her harrowing experience with Homes & Property.
“After buying my London flat 10 years ago, the fees have become so unaffordable that I can barely keep my head above water,” they said.
“Via unnecessary decorating works, random ‘charges’ and a communal area electricity fee 12 times our usage that no number of accurate meter readings can push them to lower, they have sent me almost £7,000 in bills in the last six months.”
Labour has said that it would ban property management companies that consistently rip off their leaseholders and phase out the leasehold system if they win the next election.
